Abstract

As nations intensify their climate action efforts, the termination or modification of investment contracts through regulatory measures has ignited contentious disputes in international investment arbitration. This paper examines how tribunals navigate conflicts between state-led climate policies and investor protections, with a focus on procedural challenges (such as jurisdiction, admissibility, and arbitration mechanisms) and substantive debates regarding expropriation claims, state liability, and compensation. Central to this analysis is the tension between a state’s sovereign authority to implement climate safeguards (often framed as an exercise of its police powers) and the rights of foreign investors under IIAs (including BITs and MITs).

The study examines the transition from permissible regulation to compensable indirect or creeping expropriation through case studies of recent arbitral awards, treaty developments, and doctrinal critiques. It assesses the applicability of defences such as the public welfare doctrine and the increasing influence of treaty clauses that incorporate sustainability goals, including carve-outs for environmental measures and obligations for investor due diligence. Additionally, the paper examines the methodological complexities involved in quantifying damages in disputes where climate policies disrupt long-term investments, particularly in sectors dependent on fossil fuels.
By mapping evolving jurisprudential trends and treaty drafting practices, this research highlights the need to calibrate urgent climate goals with protecting legitimate investor expectations. At the same time, it observes that while jurisprudence increasingly favours state climate measures, gaps in treaty language and damages assessments risk chilling regulation. It advocates for a recalibrated legal framework that explicitly recognises climate imperatives while reducing regulatory uncertainty. The findings aim to inform policymakers, arbitrators, and scholars on how to reconcile transnational investment law with the accelerating global energy transition, providing pathways to harmonise environmental accountability with fair dispute resolution.

This paper will be part of the fourth TDM Special Issue on "International Investment Arbitration - Environmental Protection and Climate Change Issues". More information here www.transnational-dispute-management.com/news.asp?key=1893